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After taking the top spot in the G10 currency space on Tuesday, the pound is the worst performer so far today. After the rapturous reception to Theresa May’s speech, today sterling traders may be taking a finer look at the detail, and concerns may start to arise about Theresa May’s tough line on Europe, saying that she would prefer no deal, rather than a bad deal with the EU after Brexit. This is a key reminder that the pound’s sensitivity to politics is alive and well, and volatility is here to stay.

This analysis is significant, as it suggests that the Prime Minister’s comments about how the UK will leave the EU and the single market, were well-received by GBP traders, particularly May’s confirmation that Parliament will debate the final Brexit deal. This could limit further declines and prevent GBP/USD from breaking below 1.20 in the near term.

It’s worth remembering that sterling appreciation ahead of May’s speech on Tuesday can be partly attributed to Donald Trump’s comments that appeared to talk down the dollar. This caused a wide spread dollar decline on Tuesday, with 8 of the G10 currencies appreciating more than 1% vs. the greenback.

With only 48 hours to go before President elect Trump takes office, the Trumpflation trade is under the spotlight. If Trump continues to stress the negative economic impact from a strong dollar, then we could see a breakdown in the strong dollar that we have seen since his election win back in November.

If the strong dollar gets a dressing down by Trump in the future this could have big ramifications for the FX market. Firstly, it could protect the pound against a more severe decline once Article 50 is triggered by March end. Secondly it could cause a spike in FX volatility that may trigger a wave of risk aversion in other markets. Looking ahead, Trump could be the biggest risk factor for financial markets this quarter.